China’s e-commerce giant, Alibaba Group, has announced a major restructuring plan that involves splitting the company into six separate units and exploring fundraising or listings for most of them. This move comes as China looks to ease regulatory crackdowns and support its private enterprises. The split will create six units: Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics Group, Global Digital Commerce Group, and Digital Media and Entertainment Group. This restructuring is the largest in Alibaba’s 24-year history.

The decision to break up the company follows founder Jack Ma’s return to China after a year-long stay abroad. It aligns with Beijing’s efforts to stimulate growth in the private sector after two years of regulatory crackdowns. Analysts believe that the breakup could help alleviate scrutiny on Alibaba, which has been the target of regulators for some time. In response to the restructuring announcement, Alibaba’s U.S.-listed shares rose over 10%, recovering from a 70% loss due to regulatory curbs.

Alibaba CEO Daniel Zhang explained in a letter to staff that the reform aims to make the organization more agile, reduce decision-making links, and enhance responsiveness. Each business group will need to adapt to rapid market changes and employees are encouraged to adopt an entrepreneurial mindset. Zhang will continue as chairman and CEO of Alibaba Group, adopting a holding company management model. Each of the six new business units will have its own CEO and board of directors and the ability to raise external capital and seek initial public offerings, except for Taobao Tmall Commerce Group, which will remain wholly owned by Alibaba Group.

The restructuring plan also includes streamlining middle and back-office functions, but specific job cuts were not detailed. Investors see this move as a positive sign that regulatory concerns have been addressed and Alibaba still has growth potential. It may also be a response to the U.S. scrutiny of Chinese tech firms like TikTok and ByteDance due to national security concerns. Allowing Alibaba’s new units to list could signal less hostility towards Chinese tech giants, appeasing U.S. and international investors.

This move by Alibaba is significant in the Chinese tech industry, where tight regulatory oversight has hindered deals and dampened risk appetite. However, authorities have shown a more favorable attitude towards the private sector recently, as they attempt to revive an economy impacted by strict Covid-19 restrictions. Companies, though, remain cautious due to a lack of new supportive policies and an unclear regulatory framework.

Alibaba’s shares received a boost with the return of founder Jack Ma, seen as reflecting the challenging environment faced by private businesses. Ma’s return was encouraged by China’s premier, Li Qiang, who believed it would boost confidence among entrepreneurs. The timing of the restructuring coinciding with Ma’s return suggests that Alibaba had been waiting for the right opportunity to implement these changes.

Overall, the restructuring of Alibaba Group brings much-needed flexibility and adaptability to the company, which has become a behemoth in the industry. As China aims to support its private enterprises and navigate the regulatory landscape, the decision to split into six units positions Alibaba for continued growth and success.

Useful Links:
1. CNBC: Alibaba to be split into six business units under restructuring
2. Reuters: Alibaba considering second $4 billion share sale in BOE Technology unit